The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Thu, 23 Jul 2026 11:32:28 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.8 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png Network Effects in Corporate Governance – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 Network Effects in Corporate Governance https://corpgov.law.harvard.edu/2018/01/17/network-effects-in-corporate-governance/?utm_source=rss&utm_medium=rss&utm_campaign=network-effects-in-corporate-governance https://corpgov.law.harvard.edu/2018/01/17/network-effects-in-corporate-governance/#comments Wed, 17 Jan 2018 14:02:34 +0000 https://corpgov.law.harvard.edu/?p=104194?d=20180117090234EST Posted by Sarath Sanga (Northwestern University), on Wednesday, January 17, 2018
Editor's Note:

Sarath Sanga is Assistant Professor of Law at the Northwestern University Pritzker School of Law. This post is based on his recent paper and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Firms’ Decisions Where to Incorporate by Lucian Bebchuk and Alma Cohen; The Market for Corporate Law by Lucian Bebchuk, Oren Bar-Gill and Michal Barzuza; and Delaware Law as Lingua Franca: Evidence from VC-Backed Startups by Jesse Fried, Brian J. Broughman, and Darian M. Ibrahim (discussed on the Forum here).

Why Does Everyone Incorporate in Delaware?

There are two canonical explanations:

(1) Legal quality. Firms are influenced by the intrinsic qualities of Delaware’s legal system. By some reasonable measure, its statutes, common law, and expert courts are “the best.”

(2) Network effects. Firms are influenced by each other’s corporate governance decisions. Why? Perhaps they interpret these decisions as proof of Delaware’s quality. Or perhaps they only want to follow the trend. In either case, this is a self-perpetuating rationale: Everyone goes to Delaware because everyone else is already there.

In a new paper, I analyze the incorporation histories of over 22,000 public companies from 1930 to 2010. I show that network effects were the principal force behind Delaware’s ascendance.

(more…)

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